May 31, 2002|
Losing control pangs
While war fears continue to haunt bourses, not many have an idea what's in store. Noise levels on this issue have confused more than clarified. So taking a break from war, other news to have hit the headlines is VSNL's decision to invest in Tata Teleservices.
As we are all aware, the recently privatised international telephony services provider, VSNL has decided to invest Rs 12 bn in Tata Teleservices. The government smells a rat in this, as some see this as a move by the Tata Group to recoup a part of Rs 14.4 bn it coughed up for the government's 25% stake in the company.
But legal experts point out that the management is well within the right to do so. VSNL's FY02 performance points to the pressure it's facing in the core business of international telephony, due to a massive reduction in tariffs. So, when the new management decides that investing in a company that offers fixed line services will give VSNL greater depth and possibly hedge it from pressure on international telephony rates and ISP business, one really cannot fault that logic.
The VSNL management was anyway contemplating entering the fixed line business before the divestment, but was prevented from doing so due to its PSU standing. Then it would have become a direct competitor with other PSUs, MTNL & BSNL. However, the fact that the management has chosen to invest in a Tata Group company has raised eyebrows. Also, the valuation given to Tata Teleservices may be questioned.
On the other side, the Tata Group has overall shelled out nearly Rs 26 bn for a 45% stake in VSNL. One would assume that the group sees enough potential in the company to have invested so much. So why would they do anything to weaken it. On the contrary, one would expect them to work overtime to make this investment worthwhile. Let's not forget, the Tata's are one of the biggest and most respected business houses in India. It's the same group that makes the most cost competitive steel in the world and gave India its first indigenised car. The group in short, has incredible credentials much in contrast to the government managers.
Therefore, should the government have right to meddle in a divested company after surrendering management control? Does it not defeat the purpose of divestment? Will it not discourage potential investors from bidding for PSUs?
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